Manager's departure could affect your fund

Monday, October 2nd 2000, 12:00 am
By: News On 6

By Pamela Yip / The Dallas Morning News

If the portfolio manager of your mutual fund packs up and leaves, should you also?

The results of a study conducted by Morningstar, a fund research firm in Chicago, suggest that when a manager change occurs at a strong-performing fund, you might want to stick around.

"That advice is especially true for investors in taxable accounts, as they would likely face additional capital gains taxes if they bolted," said Scott Cooley, senior analyst at Morningstar.

The story's different for investors in rotten funds.

"A manager change may not be cause for celebration," Mr. Cooley said. "Indeed, because so many poor performers continue to trail the pack, even after a new manager comes aboard, they may be strong sell candidates."

There are some guidelines to help determine how a change will affect your fund.

"If the organization is one with considerable overall strength, there's a good chance that you should hang around," Mr. Cooley said.

The red flags?

"If the fund has been consistently bad and a series of managerial changes haven't fixed it, that's bad news," Mr. Cooley said. "Shifting strategies, particularly when they involve chasing a recently hot part of the market, are another warning sign."You hear all the news about how employers are falling all over themselves trying to retain and attract employees in the tight labor market.

But they're only willing to go so far.

For the eighth straight year, the average U.S. worker can expect a pay raise of just more than 4 percent, according to preliminary survey data by William M. Mercer Inc., a human resources consulting firm. Salary increases in 2001 are expected to average between 4.1 percent and 4.4 percent.

"The projected increases for 2001 are remarkably consistent with pay increases awarded to employees from 1994 through 2000," said Bob Diers, senior compensation consultant in Mercer's Houston office. "Despite what we hear about the tight labor market and continued difficulties in attracting and retaining good employees, employers appear determined to hold the line on fixed salary costs by limiting annual increases."

The survey covered more than 2,400 midsize to large employers nationwide.

Instead of giving fat salary increases, employers are turning to incentive or variable pay to create a more direct link between employees' performance and their compensation, Mercer said.

Blame the lack of inflation for the lack of large pay raises, Mr. Diers said.

"Such increases tend to hover at 1 to 2 percentage points above the annual rate of inflation," he said. "Inflation has held steady in the 2 percent to 3 percent range for several consecutive years, leading to the steady pattern of salary increases we've seen since the mid-1990s."

Still, employers need to draw clearer distinctions in base pay to reward a job well done, Mr. Diers said.

"Even though annual pay increases may average around 4 percent for the organization, you can still award somewhat higher raises to top performers and lower raises to less performers," he said. "Granting the same pay increase across the board sends the wrong message to employees – that performance doesn't matter."Most Americans feel the government should do something now to fix the Social Security system, according to a poll conducted by brokerage firm PaineWebber Group.

"No longer the lethal 'third rail' of American politics, Social Security is an issue America wants to see addressed directly," said Donald B. Marron, PaineWebber chairman and chief executive. "That's a cue to candidates and the media to focus on the substance of Social Security reform so the nation can get on with developing a plan to provide more retirement income ahead."

Slightly more Americans, 44 percent vs. 41 percent, favor investing some of their Social Security taxes in private accounts vs. leaving Social Security essentially as it is, the poll said.

"The fact is that more and more Americans are investors, either outright or through retirement plans at work," said Mr. Marron, who was co-chairman of the National Commission on Retirement Policy, a bipartisan panel formed by the Center for Strategic and International Studies to develop a plan for long-term Social Security solvency and more retirement security.